Currencies

How the purchasing power of the shilling fell 45pc under Uhuru

shilling-note

The purchasing power of Sh1,000 has fallen by nearly half in the past 10 years of President Uhuru Kenyatta’s administration, hitting household budgets hard due to slower growth in wages.

A Sh1,000 note in July 2013 is today worth Sh548.60 in real terms, eroding the buying power of the shilling.

Ordinarily, the real value of money over time is lowered by, among others, a rise in cost of goods and services, slow growth in real wages, depreciation against hard currencies and economic shocks that raise the cost of production and basic goods.

These factors have converged on the Kenya shilling in the past decade, driving the 45 percent erosion in the buying power of the currency.

The most pronounced effects have been the higher cost of food, fuel and the depreciation of the shilling as a result of both internal and external shocks to the economy. Inflation has averaged 6.2 percent in the past decade.

The shilling has depreciated by 38 percent in the past decade, the equivalent of shedding 33 units against the dollar to exchange at 118.90 units today.

More presently, the Covid-19 pandemic and the Russia-Ukraine conflict have disrupted global supply chains causing a global food and fuel crisis. Periodic drought has also raised the cost of food.

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For example, a half litre packet of milk that cost Sh38 in 2013 is today retailing at Sh58, while the average price of a kilo of beef has jumped to Sh521 from Sh343 a decade ago.

A litre of petrol is today retailing at Sh159.94 in Nairobi, up from Sh111.30 in July 2013. Without the subsidy being paid by the government, it would be retailing at Sh209.78.

Electricity charges have also gone up, with the lowest tariff going from Sh10.16 per unit in 2013 to Sh15.94 today.

On the flip side, wages have failed to keep up with the pace of inflation. A person who was earning Sh100,000 in 2013 is now getting Sh96,200 in real terms— once the average wage increase has been adjusted for inflation.

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